Credit Card Debt Settlement Fraud Cases Growing, Investigators Say
As a Texas couple faces wire fraud charges for launching a phony debt settlement firm, residents in Maryland hope to recoup as much as $2.5 million in restitution after the closure of a larger debt settlement company. In both cases, phony debt counselors convinced their clients to deposit cash into special accounts that would be used to pay off credit card balances. The money went to company directors, not to banks. Investigators say a lack of regulation in the debt settlement industry makes it easy for criminals to bilk consumers under the guise of debt reduction.

Traditionally, debt settlement was a strategy used by some consumer credit counseling agencies as a last-ditch effort to get a household's finances back on track. Partnerships with sponsoring credit card companies ensured that participants could get the education necessary to form effective budgets while rebuilding their credit. However, having endured the effects of a recession, some Americans have found themselves willing to try anything to cut their credit card bills in half or more.

Debt settlement typically involves negotiating with a credit card company willing to accept a portion of an outstanding balance in exchange for a portion of the amount due. Credit card issuers might prefer to receive half of a balance, for example, instead of waiting for the account to default. Because this strategy can be devastating to consumer credit reports, personal finance experts often recommend dealing with a credit card company's remediation department.

About the Author


Joe Taylor Jr. is an internal business consultant for a Fortune 500 company, who writes about finance, culture, and design. He holds a Bachelor of Science in Communications from Ithaca College.